PetroChina Co. Ltd. and Shell PLC have agreed to make an additional investment in the Surat Gas Project (SGP), their joint venture in Australia that is expected to produce approximately five trillion cubic feet of natural gas over a 27-year period.

Like phase one, which was approved by the partners in 2020, phase two will supply a Shell-operated liquefaction plant on Curtis Island in Queensland state, Shell said in a statement. The liquefied natural gas (LNG) is intended for export, but the Surat Gas Project will also supply gas for the domestic market.

Phase two, SGP North, is expected to have peak production of around 130 million cubic feet per day and will involve drilling up to 450 production wells. Shell expects to start production in 2026.

The Surat gas project is operated by the British energy giant and state-owned 50:50 joint venture Arrow Energy Pty. Ltd. of the Chinese company PetroChina.

Arrow said in a separate press release that construction is scheduled to begin in late 2024. The infrastructure will include a new field compression station and a 27-kilometer pipeline. The work will also include improvements to roads and other existing infrastructure.

Meanwhile, phase one, which consists of over 600 wells, is expected to produce peak production of 90 billion feet per year, according to Shell’s final investment decision announcement on April 17, 2020.

The Surat Gas Project, which targets coal seams in the basin of the same name, is part of a 27-year contract by Arrow to supply QCLNG (QCG), the operator of the Queensland LNG plant. QCG is a joint venture owned by Shell with a 73.75 percent stake, while state-owned companies China National Offshore Oil Corp. and EIG Management LLC own 25 percent and 1.25 percent, respectively. Last year, QCG supplied 15 percent of gas demand on Australia’s east coast, according to Shell.

“QCLNG booked its 1,000th cargo late last year, underlining its importance as a gas supplier to Australia and the region,” said Zoë Yujnovich, Director of Integrated Gas and Upstream at Shell. “This investment will enable us to maintain and grow this important, secure energy source that offers a lower-emissions alternative to options such as coal.”

According to its Energy Transition Strategy 2024 report, Shell aims to increase its LNG production by 20 to 30 percent by 2030 compared to 2022.

A forecast report dated February 14, 2024, said that global demand for liquefied natural gas (LNG) was expected to increase by more than 50 percent by 2040. The reason for this was an accelerated industrial switch from coal to gas in China and demand in South and Southeast Asia due to economic growth.

“Shell believes that LNG will play a critical role in the energy transition, replacing coal in heavy industry,” the company said in the Surat Phase 2 press release. “It will continue to play a role in replacing coal in power generation, helping to reduce local air pollution and CO2 emissions. LNG helps provide the flexibility the power system needs at a time when renewable energy generation is growing rapidly.”

Shell added: “The investment in Phase 2 is expected to generate an internal rate of return above the minimum rate of return for Shell’s integrated gas business.”

Arrow Managing Director Zhengxin Peng commented on the additional investment in Surat: “At a time when households, businesses and industry need more gas, the SGP North development will cement Arrow’s position as a major natural gas producer on the east coast.”

On the employment side, Arrow expects to be able to offer up to 400 jobs in phase two.

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